Global monetary policy is shifting towards a pause in interest rate hikes by multiple central banks

Recent data released by multiple countries such as the United States shows that although inflation hovers at high levels, its growth rate has significantly decreased. Due to concerns about the weak economic outlook, many central banks are turning to suspending interest rate hikes or releasing signals of tightening monetary policies.
US CPI growth slows down in March
According to data released by the US Department of Labor on the 12th, the US Consumer Price Index (CPI) rose 0.1% month on month in March this year, which is 0.3 percentage points narrower than February and lower than market expectations. However, overall inflation is still at a high level.
Data shows that the US CPI increased by 5% year-on-year in March, which is 1 percentage point narrower than February and the smallest year-on-year increase since May 2021. After excluding volatile food and energy prices, the core CPI increased by 0.4% month on month and 5.6% year-on-year.
Specifically, the housing cost, which accounted for about one-third of CPI in that month, increased by 0.6% month on month, the smallest increase since November last year, but still increased by 8.2% year-on-year; Affected by the decline in gasoline prices, energy prices decreased by 3.5% month on month and 6.4% year-on-year; Food prices remained unchanged month on month and increased by 8.5% year-on-year.
Analysts believe that despite recent signs of sustained easing in US inflation, it is still far above the Federal Reserve's 2% inflation target. The sustained high inflation and tight labor market may make the Federal Reserve continue to prioritize restoring price stability.
In addition to the United States, the Asian Development Bank (ADB) stated last week that developing economies in Asia are expected to experience a slowdown in inflation this year and next, with inflation expected to slightly slow this year from 4.4% in 2022 to 4.2%.
In Europe, due to the sharp decline in energy costs such as natural gas, the latest inflation data released by Germany, the largest economy in Europe, has significantly slowed down. The country's consumer price index (CPI) rose 0.8% month on month in March. The initial annual rate of CPI in March was 7.4%, 1.3 percentage points slower than the 8.7% in January and February.
Multiple central banks suspending interest rate hikes
Due to the recent slowdown in inflation growth and increased uncertainty in the economic outlook, many central banks have suspended interest rate hikes, releasing a turning signal to abandon monetary policy tightening measures.
According to a report by Barron Weekly in the United States, major central banks around the world are no longer on the same front in tightening monetary policy, and the future trend may tilt towards stopping interest rate hikes.
Starting from February this year, the South Korean central bank suspended interest rate hikes and once again maintained interest rates unchanged at the April 11th interest rate meeting. In March, the Bank of Canada joined the team of suspending interest rate hikes; Last week, the Bank of Australia suspended its one-year interest rate hike, which had already raised interest rates 10 times, totaling 350 basis points; The Bank of India surprised the market last week by announcing a pause in interest rate hikes.
Market participants have stated that the recent increase in financial system risks has led more and more central banks to consider suspending tightening monetary policy, and the Bank of India will definitely not be the last central bank to suspend interest rate hikes.
Sakha, Deputy Chief Economist for Emerging Markets at Kaitou Macro, said that if inflation does not decrease, the interest rate hike cycle may resume. But considering the weak growth prospects and the possibility of inflation falling back within the target range of the Bank of India in the near future, our view is that the tightening cycle has come to an end
US monetary policy makers also face similar issues. According to a report by Barron Weekly, market insiders believe that in addition to the expected 25 basis point rate hike in May, the Federal Reserve may also lower interest rates in the future. In response, New York Fed Chairman Williams stated in a media interview on the 11th that once inflation begins to decline, the Federal Reserve will need to consider adjusting interest rates and may even lower them to ensure that inflation adjusted interest rates are not too high.
He pointed out that the March interest rate matrix of the Federal Reserve shows that interest rates will decrease both next year and the following year.
On the European Central Bank's side, the bank raised interest rates by 50 basis points in March, but due to the impact of banking risks, the European Central Bank has not yet provided May interest rate guidance.
Food prices remain high
Although the trend of global monetary policy shift has begun, the risk of food driven inflation in Europe and America continues, which may pose a dilemma for central bank decision-making.
The Wall Street Journal recently reported that energy prices have fallen after more than a year of crisis in Ukraine, but the cost of food, which is an important consumer expenditure for households, is still rising. Although the industry expects food prices to cool in the coming months, if the central bank fails to handle it well, coupled with workers demanding higher wages, it may further lead to a spiral increase in prices.
In the year ending in March, the prices of food, alcohol, and tobacco in the eurozone surged by 15.4%, while energy prices fell by 0.9%; In the year ended February, food prices in the United States increased by 10.2%, much higher than the 5.2% increase in energy prices.
According to the report, since April 2022, food prices in global commodity markets have been declining. The problem may be that there is a lag between the changes in agricultural product prices and household food prices, and the cost of raw materials is only a part of the final price. Consumers also have to pay for processing, packaging, transportation, and distribution costs. The gap between the farm and the dining table highlights other issues for economists: food supply chain companies may increase prices too much, even exceeding the costs they must pass on.
High grain prices will be a thorny issue faced by central banks around the world. Central bank decision-makers are mostly more concerned about core inflation, which does not include food and energy, but overall inflation, including food and energy, can affect people's expectations of price trends. Food is a commodity that most households purchase every day. This may lead to workers demanding higher wages, which in turn reflects prices and drives up inflation rates.